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It is interesting to see a number of people expressing their desire to invest in a given company through an I.P.O of which they have little information of knowledge about like in the Case of the intended listing of Visa in the United States and Safaricom in Kenya. Most investors (I don't know if the same applies in America), normally rely on their emotions and gut feeling only in making the decision to participate in an I.P.O then afterwards spread the word to their friend creating a huge euphoria for the I.P.O. I don't deny the role of the publicity agency in creating the hype, much more actually comes from peoples' personal opinions about the share which leads me to expound the importance of a prospectus in any listing

To avoid buying into company through an I.P.O then regretting later on your bad decision, it is important that you overcome your emotional attachment to the company and its products and rationalize the share offer. In order to do so, you need concrete information on which you shall base your decision upon. Most of this information is contained in the prospectus of the company that intends to list its shares on the stock exchange

The prospectus includes very important information like the historical performance of the company in the previous years, the current owners of the company, the amount of shares that they are offering to the public, what they intend to do with the money after the I.P.O amongst other things. Any prudent investor will take his/her time to go through this information in order to make an informed decision on the amount of shares to take up or even if to participate in the offer. As an investor this are the things to look out for in the prospectus
1.The company performance in the pre-ceding years. This is important for you to develop performance trends and therefore be able to predict its future performance- all factors held constant. This is mainly done by looking at the statements of accounts. The balance sheet is important so as to look at the net book value of the share to determine if the company is overvalued or undervalued (offered at a discount) at the time of the offering. The net book value is arrived at by taking the total assets divided by the total number of shares. It will be interesting to see how safaricom arrived at its value for the share offer. What did it include as part of its assets to reach that price? The cash flow statement shows the company's ability to offset its debts in the short run thus avoid bankruptcy.

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